Cuts – still a phoney war with more heat than light

At last Gordon Brown has uttered the “c” word – cuts. Although everyone knows that some level of cutback in public spending is going to be necessary, all attention has focused on the “will he, won’t he” question of whether the Prime Minister would use the ‘cuts’ word. And now we have some leaked Treasury documents that suggest maybe a 9.3% real terms cuts by 2013. The Tories are busy making hay out of this but they should beware – now they have to say what they would do.

The irony to point out here is that at the start of his Chancellorship, back in 1997-99, Gordon Brown presided over the biggest drop in public spending as a percentage of national wealth – down to about 37% of GDP – in recent history. And until the recent crisis – and despite all the hype – New Labour had increased public spending only to about 43% of GDP, which is roughly the average for the past 4 decades or so. And it is public spending as a percentage of national wealth which is probably the best way of thinking about how much we are really spending – the simple amounts in £billions are nearly always misleading.

So why the crisis now? It is not because of massively increased public spending but because of the downturn in the rest of the economy and the collapse in tax revenues, especially from the financial bubble that sustained higher public spending without the government having to raise tax rates very much.

Now we face a burgeoning cumulative national overdraft – set to leap from 40% to 80% or more of GDP, unless something is done.

Now Gordon has uttered the dreaded ‘c’ word perhaps we can move on to a more adult debate: by how much do we need to slow down or reduce the growing national debt; how soon (given we’re still in recession) and how quickly can this be done: and how and where. It is this last both Labour and Tories still seem determined to avoid answering for as long as possible.

Should we increase taxes to pay for public services, or cut services, or some combination of the two? And if we are going to cut – what, where and how? Just as there’s no such thing as a free lunch, there’s no such thing as a painless cut. Isn’t it time for the whole truth from our politicians?

So far the signs are not good that we will get very clear answers before the election. Gordon Brown’s talk about cutting waste and unnecessary spending without cutting ‘front-line’ services is just rhetoric – without specifics it is meaningless. Cutting annual the deficit by half by 2013, as Chancellor Darling has promised, is more specific – but how? The 9.3% cut in real terms by 2013 seems to be part of the answer, although it is not clear these figures add up and, of course, they are not public.

David Cameron’s and George Osborne’s rhetoric is even stronger, but so far all we have heard is talk about cutting ministers pay and subsidies on MPs dining is neither here nor there. Cutting the annual deficit to zero by 2013, for example, would mean another £60 billion or so cuts on top of the £60bn Labour is promising – again, how? Will they be proposing to reduce public spending by more than 9.3% in real terms? If this only halves the budget deficit, then roughly they’d have to cut 18.6% in real terms to get back to a balanced budget by 2013. Are they seriously suggesting they can protect health, and international development, and make sure our boys and girls in Afghanistan have the right equipment, and keep Trident, and still carve nearly a fifth out of the national budget?

Apart from the obvious fact this would be the biggest ant-stimulus package in modern British history, as soon as the impact became apparent they’d probably also be the most unpopular government in recent times too.

The hope is that in the Pre-Budget report – due in November – the Government will set out more detailed official plans and force the Tories to respond with their own policies. The this phoney war of the cuts will be over, and we’ll all know what they really plan. But don’t hold your breath. We could still be headed for one of the least transparent elections in years with neither major Party setting out clearly what they will do with the public finances. Not a good idea in a democracy.